The evolution of global sourcing has been shaped by China’s significant role as a supply powerhouse, yielding impressive procurement efficiencies and cost savings. Now, however, in the face of shifting strategic landscapes, decision makers across industries are scrutinizing the long-term viability and risk profile of their sourcing strategies.

This reevaluation has been spurred by factors both within and outside of China’s borders. Domestically, China’s economic progress has led to rising costs, including labor costs, while increased competition and protective trade policies have altered the market’s dynamics. Internationally, geopolitical tensions, stringent regulations (such as the German Supply Chain Due Diligence Act), and the potential for global disruptions (resulting from a pandemic, for instance) have propelled global sourcing strategies to the top of corporate agendas.

In response, companies are seeking to develop strategies that preserve commercial benefits while offering resilience. Balancing the challenges and objectives requires a two-step approach. Companies should start by evaluating each product category with respect to the need for and the ease of changing the sourcing strategy. They can then apply the results of this category baselining to define the optimal strategy. To guide the effort, we have developed a framework that sets out a range of strategic sourcing configurations.

Category Baselining: How Necessary and Easy Is Change?

Drawing broad conclusions about global sourcing can be difficult and risky because every product category has a distinctive market dynamic, competitive landscape, and value chain. The category baselining allows companies to consider these nuances. (See Exhibit 1.)

Need for Change. The need for change is a function of supply chain risks, sustainability regulations, and costs.

Supply chain risk continues to be a dominant factor in global sourcing strategies and is thus the primary consideration when gauging the need for change. The need is stronger in those categories whose supply chains are most vulnerable to trade restrictions or other geopolitical developments. Products such as semiconductors, which require intellectual property protection and unique local content specifications, may also be under pressure.

The rise of sustainability regulations is propelling the reshoring and near-shoring of supply chains. Heightened public awareness and government focus on environmental, social, and governance factors, such as a product’s carbon footprint, are driving these changes. Sustainability regulations not only amplify compliance risks but also drive higher purchasing costs. An example is the carbon border tax currently under review by the European Commission.

Companies need to gauge how expenses associated with the primary costs of purchased goods are affecting the manufacturing advantages offered by China. Although labor costs have steadily risen over the past decades, production companies in China continue to benefit from favorable raw-material and energy costs.

Ease of Change. The ease of change is a function of market dominance, the availability of alternative sources, and the feasibility of building up those sources.

Market dominance is the most pivotal factor in determining the ease of change. In certain categories, China has cemented its leadership in both production and exports; for example, Chinese-produced crude steel accounted for 52.9% of global output in 2021, and its share of metal casting reached 48.9% in 2020.¹ 1 World Steel Association, “World Steel in Figures 2022,”; Statista, “Volume of global casting production from 2018 to 2020, by country.” Notes: 1 World Steel Association, “World Steel in Figures 2022,”; Statista, “Volume of global casting production from 2018 to 2020, by country.” Such dominance undeniably complicates the transition to alternative sources.

Assessing the availability of alternative sources involves more than just volume considerations. The quality standards those sources can maintain, along with their ability to absorb redirected volume from China, are fundamental factors in the ease of transition. Beyond cost benefits, China has remained a preferred option for global sourcing owing to its robust infrastructure and well-established industry clusters throughout the value chain.

Companies need to evaluate the feasibility of building up alternative sources, considering the required capital expenditure, potential technological barriers, and the local business environment, among other factors. It is important not to underestimate the time required to develop these sources. The advantages of sourcing from China cannot be readily duplicated in only a few weeks or even months.

The Baselining Matrix

After evaluating these factors, companies can position each product category within a matrix that, by illustrating its need for and ease of change, offers guidance on refining the sourcing strategy.

To lay the groundwork, companies should take a variety of actions:

• Decide whether to source locally or to utilize China's manufacturing strengths.
• Proactively cultivate a diverse network of suppliers across various regions to enable the adaptability and balance offered by the various strategic sourcing configurations.
• Implement comprehensive screening and validation processes in the selected countries.
• Strengthen existing partnerships and establish new ones to enhance resilience and minimize risks.
• Prepare to employ a combination of currently available suppliers alongside those developed for the long term to ensure immediate support as well as sustained adaptability.

After selecting a strategy, companies should define concrete implementation initiatives and prioritize them in a roadmap that sets out their sequence and interdependence. They should also define owners and responsibilities to ensure accountability.

Joint approval of the strategy by procurement and related business stakeholders is a key factor in securing the commitment of all involved functions and teams during implementation. Equally important is establishing a committee that regularly reviews progress, makes the necessary decisions, and resolves conflicts or escalates when necessary. Finally, companies should evaluate the strategy annually and redefine it as needed for the upcoming year, bearing in mind the lead times for making adjustments.

In taking these steps to revitalize their global sourcing strategy, companies should follow three main imperatives:

• Proceed with caution. Global sourcing can offer significant value for procurement, but do not overlook the associated risks.
• Strike a balance. Assess the need for and ease of change for each category and their implications for the sourcing strategy.
• Integrate into governance. Regularly review the sourcing status for all categories and adjust the corresponding strategies to keep pace with the ever-changing supply market.

Mastering the complexity of global sourcing is crucial for companies seeking to maintain resilience and a competitive edge. The transition from tried-and-true approaches to alternative sourcing options is imperative, even as China continues to play a major role in many sourcing strategies. Executing this strategic pivot requires a blend of analytical acumen and bold decision making. Companies that succeed in building more diverse and robust supply chains can secure a path to sustainable growth, despite the uncertainties of shifting consumer trends and ongoing geopolitical challenges.